Statoil to merge gas trading with liquids business

The Norwegian company plans to combine its gas-trading operations with a liquids division that buys and sells crude, condensate, refined products and gas liquids. The move would be effective May 1.

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By MIKAEL HOLTER and ANNA SHIRYAEVSKAYA

Bloomberg

Statoil, Europes second-largest natural-gas supplier,
will merge its gas- and oil-trading units as differences in
buying and selling the two commodities fade and competition
increases.

The Norwegian company plans to combine its gas-trading
operations with a liquids division that buys and sells crude,
condensate, refined products and gas liquids. The move would
be effective May 1, Eldar Saetre, Statoils senior vice
president for marketing, processing and renewable energy,
said in an interview.

Gas markets have gradually changed in Europe, from
being based on long-term contracts and oil-indexed price
formulas to being a more liquid and fully traded market, such
as crude oil, Saetre said. Theres tougher
competition and even more players in our markets. That means
I see the need to take out cost synergies and improve
efficiency.

Producers such as Statoil are adapting to the demands of
European utilities including RWE, which want to undermine the
tradition of linking gas-supply deals to oil prices, a
40-year-old system set up before European gas markets for immediate
delivery developed. The practice has led to losses for
utilities because gas has become cheaper and the oil price
has climbed.

Less than half of wholesale gas in Europe is sold under
oil-linked contracts, compared with almost 100% before the
2008 financial crisis and a push by European Union regulators to
liberalize continental markets, according to Thierry Bros, an
analyst at Societe Generale.

Trade Increase

Global gas trade will jump 30% in the seven years through
2018, led by soaring Australian exports and boosted by North
American liquefied natural gas (LNG) shipments at the end of
the period, according to the International Energy Agency.
That will raise pressure on exporters to revise the link
between long-term supply deals and oil as the gap between the
two fuels persists.

Statoil produces about a third of Norways oil and gas,
which it trades in addition to volumes from third parties
such as the Norwegian state, making it the worlds
third-largest net seller of crude, according to the company.
It has trading offices in Stavanger, London, Singapore,
Stamford and Calgary, with 360 employees for the oil market
and 370 for gas.

The merger of the two units wont have any direct
consequences for staffing beyond existing cost-saving
measures, Saetre said.

Marketed Volumes

Statoil marketed 95.8 billion cubic meters of gas in 2012,
half of that being its own output. About 80% of the total
went to Europe, representing 70% of all Norwegian gas
exports. The same year, the Stavanger-based company sold 714
million bbl of crude and 171 million bbl of natural-gas
liquids, less than 40% of which was its own production.

The 67% state-owned company, the biggest gas supplier to the
UK and Europes largest after Russias Gazprom, has
said more than 75% of its gas contracts will be linked to
spot prices by 2015, up from 55% at the end of 2012. Statoil
no longer has oil indexation in its German contracts and has
largely eliminated it from deals in northwest Europe, though
the liberalization of southern and eastern European markets
hasnt come as far, Saetre said.

GDF Suez, which owns Europes biggest gas network and is
one of Statoils biggest clients, said last week
long-term European contracts must become
more flexible if they are to survive as a feature of supply
security as cheap coal imports make gas-fired plants less
competitive.

Adapting Contracts

The market, and gas in general, would be well-served
with a development toward hub-pricing, Saetre said.
We have played an active role in this.

Statoil is being innovative, increasingly
offering contracts adapted to individual customers, according
to the executive. These include pricing linked to the spread
between electricity and gas prices for power producers, he
said.

Still, the company is facing arbitration proceedings with
Italys Eni, which claims it has been
overbilled for years for its gas. Saetre wouldnt
confirm reports Eni is seeking $10 billion in
compensation, reiterating Statoil hopes to negotiate a deal
before the case reaches an arbitration tribunal.

Germanys RWE last year got money back from Gazprom
after pushing for a better deal as gas spot prices slumped
lower than the long-term contract, the first time the
Moscow-based producer has been forced to adjust its deals by
a court ruling.

Oil Benchmarks

Statoil, together with Royal Dutch Shell and BP, is also
under scrutiny from US and EU authorities on suspicion of
manipulating oil benchmarks published by Platts. Statoil has
no plans to withdraw from the Platts pricing system, and
declined to comment on details of the probes.

We dont know why this happened and why we were
included in this investigation, Saetre said. We
have yet to get any good explanation.

In addition to the merged marketing-and-trading unit for oil
and gas, Statoils marketing, processing and renewable-
energy division will from May 1 include individual
departments for renewables, operations and asset management,
separating ownership of installations such as refineries from
day-to-day work.

Statoil has sold assets for more than $18 billion since 2009
to afford higher dividends just as rising costs cut into
profit. The company has signaled that trend would continue,
even as it scaled back investment plans for the next three
years by 8% earlier this month.

To have an even more active management of our portfolio
is a part of the MPR restructuring, Saetre said.
To consider at all times whether we have the right
assets is a part of our strategy.

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